Use of Anticipated Tax Refunds for Down Payment/Closing Costs

It's that time of year where questions arise concerning tax refund loans and whether or not they are acceptable funds for use as qualifying assets in the loan transaction. Upon checking into this, following is some information you may find useful.

1. Bank Deposit products.

      a. These are considered the borrower’s funds and can be used for down payment and closing costs etc  
          just like normal borrower funds.

     b. An example of this is the H&R Block Refund Anticipation Check.

2. Unsecured Refund Loan Products

    a. These are unsecured loans which are not eligible for use in our transaction.

    b. An example of this is the Jackson Hewitt/Republic Bankcorp Anticipation loan.


Generally we must have paperwork from the borrower that they received from their preparer to determine if the funds can be used or not. Scenario 1 is acceptable, scenario 2 is not.

There is confusion on this because sometimes option 2, the refund loan, is represented as a secured loan, but it is not always a secured loan.  We make this determination by getting a copy of the paperwork. If the loan documents say “secured loan”, the funds can be used. If they say “signature loan”, “Line of Credit”, “unsecured loan” or anything similar, the funds cannot be used. 


Fannie/Freddie and FHA guidelines do not allow for the use of unsecured funds.